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C O N F I D E N T I A L SECTION 01 OF 02 LONDON 002225
SIPDIS
NOFORN
NSC FOR FROMAN
TREASURY FOR MURDEN/SOBEL
EO 12958 DECL: 09/24/2019
TAGS ECON, EINV, PGOV, AGMT, UK
SUBJECT: CHANCELLOR DARLING ON BANKERS’ BONUSES, UK
RECOVERY, AND LABOUR PROSPECTS
Classified By: Ambassador Louis B. Susman for reasons 1.4 (b) and (d).
¶1. (C/NF) Summary: Chancellor of the Exchequer Alistair Darling told the Ambassador during his September 23 introductory meeting that G20 governments must continue to implement stimulus packages and avoid complacency. Darling warned that if banks paid out large bonuses in 2010, they could provoke a political backlash and draconian legislation that would have unintended consequences. Governments needed to pressure the banks to exercise restraint. The Chancellor was cautiously optimistic that the UK economy would return to growth by year-end, but worried that the recovery remained fragile. Darling had sharp words for the Conservatives, who were campaigning on budget cuts, but unwilling to say what they would cut. He said that Labour was losing hearts and minds more than the Conservatives were winning people over. The Ambassador raised the issue of VAT charges on the London Embassy project and subsequently briefed U/S Kennedy by phone. End Summary. Recovery is Fragile and Banker Bonuses
Radioactive
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¶2. (C/NF) The Ambassador said that the President was committed to a strong framework for growth at Pittsburgh and asked the Chancellor for his expectations from the G20 summit. Noting he was traveling to Pittsburgh early September 24, Chancellor Darling stressed the importance of continuing stimulus packages and avoiding complacency. Unemployment levels across the developed economies were high, continuing to rise, and risks to growth remained real. He cited IMF predictions that Germany could re-enter recession and expressed concern about the potential for higher oil prices. He noted that high public sector debt levels constrained governments, room for maneuver. On pay and bonuses, Darling cautioned that banks needed to exercise restraint. With spring UK elections in mind, he said that if banks announced large bonuses early in 2010, the pressure for draconian legislation would be politically irresistible. He expressed concern that a political backlash could produce legislation that had unintended consequences and cited Sarbanes-Oxley as an example. He said governments needed to persuade bankers not to do something stupid in the coming months. Cautious Optimism on Recovery
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¶3. (C/NF) On the UK economy, the Chancellor remained cautious, but expected a return to growth by the end of the year. But he cautioned that it would be &foolish to announce victory.” He said that the UK’s heavy dependence on services, and especially financial services, meant that UK growth would lag behind other economies and depend on their growth. He added that if businesses and the public see recovery, they will spend. U.S. Committed to Address Climate Change
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¶4. (C/NF) The Chancellor asked about the prospects for climate change legislation. The Ambassador referred to the President’s September 22 speech at the UN Climate Change Summit and highlighted his commitment to address climate change through strong administrative measures and through legislation. Noting the determination of White House and Congressional leaders, the Ambassador expressed confidence that Congress would pass legislation. Labour Losing Hearts and Minds
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¶5. (C/NF) Responding to a question on the UK election, Darling said that the Conservatives may think they can run a campaign on cutting spending without specifying what they are going to cut, but this will become less and less tenable. He said it is in the nature of the opposition to criticize without offering up specifics. In the meantime, he said that Labour would &fight like hell for re-election.” Darling was sanguine about Labour’s challenge ) &the problem is not that the Conservatives are winning hearts and minds, rather that we are losing them.8 He said that Labour needed to regain the confidence of the public that they can win. VAT Exemption on New Embassy Unlikely
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¶6. (C/NF) Ambassador raised the new embassy project at Nine Elms, noting that the USD 1.2 billion project would spur redevelopment of a blighted area and create jobs. He said that as a matter of principle, the UK should not impose value-added tax on the construction of a chancery building. Darling responded that the government could not exempt the project from VAT, citing the recession, tight budget and elections. Ambassador noted that construction was projected
LONDON 00002225 002 OF 002
to start in 2012 and urged the Chancellor to work with him to find a solution.
Visit London’s Classified Website: http://www.intelink.sgov.gov/wiki/Portal:Unit ed_Kingdom
SUSMAN